Apple iPad 2 Production Hindered by Japan Earthquake: IHS iSuppli

Apple's reliance on a number of Japanese parts suppliers is expected to hurt its ability to meet even-better-than-expected demand for its iPad 2 tablet.

Apple may face
difficulties meeting demand for its newly released iPad 2, due to the current
catastrophic conditions in Japan, IHS iSuppli reported March 17.
Following a teardown analysis of the iPad 2, the firm
identified at least five components that are sourced from Japanese companies.
While some suppliers have reported that their facilities were undamaged by the recent
8.9-magnitude earthquake and subsequent tsunami, a number of factors, including
aftershocks that continue to rock parts of the country, will make delivery of
components a challenge.

Suppliers
currently face difficulties getting raw materials shipped in and components
shipped out; employee absences are high, due to problems with transportation
systems and interruptions in the supply of electricity-some areas are
experiencing rolling blackouts. These factors are having a major impact on
"delicate processes, such as semiconductor lithography," said the
report, especially as the country continues to experience aftershocks.

"Earthquakes
ranging from 4 to 7 on the Richter scale will make it impossible to really
restart these fabs [fabrication facilities] until the earthquakes stop
happening with such frequency," IHS iSuppli analyst Dale Ford said in a
statement. "Every time a quake tops 5, the equipment automatically shuts down."
iPad 2
components sourced from Japan, said the firm, include NAND flash from Toshiba; DRAMs
(dynamic RAMs) from Elpida Memory; an electronic compass from AKM
Semiconductor; the system battery from Apple Japan; and the iPad 2's touch-screen
overlay glass, which, while not confirmed by Apple, is suspected to be from
Asahi Glass.
"Physical
tests conducted by IHS iSuppli reveal that the iPad 2 glass is more flexible
and durable than the glass used in the iPad 1, possibly indicating that the
glass is Asahi's Dragontrail," stated the report. It added that Asahi
Glass has reported damages at three of its facilities.
The Toshiba
NAND flash could instead be provided by South Korea-based Samsung or U.S.
memory maker Micron Technology, IHS iSuppli suggested, and Samsung could
likewise replace the iPad 2's Elpida-made DRAM. Replacing the device's compass,
however, is likely to prove more problematic for Apple. While AKM has said its
fab that produces the compass is undamaged, it still faces the logistical
problems now plaguing the country. And while Yamaha, Aichi Steel, Alps and
STMicroelectronics all provide compasses, said IHS iSuppli, the compass works
in delicate harmony with other components, making a simple swap untenable.
"The
calibration of electronic compasses is tricky for a number of reasons," J??Â«r??Â«mie
Bouchaud, director and principal analyst for MEMS and sensors at IHS iSuppli,
said in a statement. "Compasses are sensitive to electromagnetic interference.
Furthermore, the iPad 2's compass works in close coordination with the tablet's
accelerometer and gyroscope. This makes it impossible to simply replace one
manufacturer's compass with another."
Additionally,
the iPad 2's super-thin battery pack could put the brakes on new shipments.
While the packs are assembled in China, the battery itself is made by Apple
Japan.
"Apple
could have difficulties obtaining this battery, and it may not be able to
secure supply from an external, non-Japanese source," said the report.
Introduced
March 2, the Apple iPad arrived in stores March 11, and first-day sales may
have been as high as 500,000 units, according to Piper Jaffray analyst Gene
Munster. (Apple has not yet commented on sales figures.)
"Strong
demand in stores and online suggests that our estimate of 5.5 million iPads in the March
quarter is likely conservative," said Munster, whose team that day spoke
with 236 iPad 2 buyers in New York City and Minneapolis.
Global
Equities Research analyst Trip Chowdry reported that on the iPad 2's launch
day, each Best Buy store sold its 40 iPad 2 units in approximately 4 minutes
and took $100 deposits for the next shipment of tablets, expected to arrive the
following week.
Apple's parts
supply problem may be happening, IHS iSuppli reported, just as Apple is rushing
to ramp up production to meet even-better-than-expected demand.
"[Apple]
this week announced that iPad shipments from the Apple Store have been delayed
by one week from previous lead times," stated the report, "because of
the surge in demand."
Apple has also
for now called off the iPad 2's scheduled launch in Japan.
A new release date has not yet been set.

Michelle Maisto has been covering the enterprise mobility space for a decade, beginning with Knowledge Management, Field Force Automation and eCRM, and most recently as the editor-in-chief of Mobile Enterprise magazine. She earned an MFA in nonfiction writing from Columbia University, and in her spare time obsesses about food. Her first book, The Gastronomy of Marriage, if forthcoming from Random House in September 2009.